Comprehensive reforms needed for Tanzanian coffee

Coffee, Tanzania’s largest export crop, offers employment to more than 400 000 poor households. In the 1990s the country’s coffee cooperatives faced financial difficulties and a world price decline. The Tanzanian Government began reforms that reduced the role of official cooperatives and government companies, allowing the private sector to market and process coffee.

The Tanzanian coffee industry’s problems date back to the 1960s, when cooperatives and the state Coffee Board assumed responsibility for all aspects of coffee marketing. Large estates were nationalised. Over the years, the coffee sector has been subject to a shifting of power between the cooperatives, the Coffee Board and various ministries. But the needs of the sector were never seriously addressed. Research from the World Bank assesses the constraints and challenges facing Tanzania’s coffee industry.

With the reforms of the 1990s, the share of prices received by producers has increased and growers now receive payments more promptly. The private sector’s involvement has increased enormously but with the lack of government support and research, the quality of the coffee crop has declined. Growers are now exposed to world price fluctuations. The nationalised estates face major managerial difficulties and have very low yields: many have been practically abandoned. However, those that have been privatised have been extensively rehabilitated. The Tanzanian Government acknowledges that the country’s best coffee comes from private estates and a few progressive farmers.

Other key constraints are:

• Taxation of the coffee sector is too high – growers have to pay almost a fifth of income on a variety of complex taxes and fees.
• Smuggling of as much as 30 percent of robusta coffee to neighbouring countries reduces tax revenue and encourages corruption.
• All coffee for export must be marketed through an auction in the city of Moshi, increasing storage and bureaucratic costs.
• The Coffee Board’s powers to issue and suspend licences and permits are intrusive and lead to decisions being made in response to political pressures.
• Banning purchase of coffee in cherry form forces small farmers to do their own primary processing (pulping) with old equipment, lowering the quality of coffee.

The author recommends that:

• Taxes should be small, simplified, rationalised and made uniform across all exports.
• The requirement to sell coffee through the Moshi auction should be removed: this would encourage cross-border trade and could give Tanzanian smallholders the opportunity to benefit from higher prices for premium quality robusta and mild arabica coffee.
• Growers and traders, not bureaucrats, should be free to determine when coffee is harvested.
• Licenses should be renewed automatically and be subject to a small fee to cover administrative costs; they should not be seen as a tool for taxation.
• The Coffee Board should improve its collection of statistics: at present neither the public nor private sectors can make policy or investment plans due to poor data.

The excessive involvement of the state continues to discourage the private sector. The power of the Coffee Board and the ministries must be substantially reduced and their roles clearly defined.

Source(s):
‘Tanzania’s coffee sector: constraints and challenges’, Journal of International Development, Volume 17, Issue 1, pp21–43, by John Baffes, 2005
‘Tanzania’s coffee sector: constraints and challenges in a global environment’, Africa Region Working Paper Series No. 56, World Bank, by John Baffes, June 2003 Full document.

Funded by: World Bank

id21 Research Highlight: 18 October 2005

Further Information:
John Baffes
The World Bank
1818 H Street, NW, MC 2-200
Washington, DC 20433
USA

Tel: +1 (0)202 4581880
Fax: +1 (0)202 5221151
Contact the contributor: jbaffes@worldbank.org

The World Bank

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